McCann v. McCann
| Decision Date | 13 March 2012 |
| Docket Number | No. 37547.,37547. |
| Parties | Ronald R. McCANN, Plaintiff/Appellant/Cross–Respondent, v. William V. McCANN, Jr., and Gary E. Meisner, individually, as a director of McCann Ranch & Livestock Company, and as a shareholder of McCann Ranch & Livestock, Inc., in his capacity of the William V. McCann, Sr., Stock Trust, Defendants/Respondents/Cross–Appellants, and McCann Ranch & Livestock Company, Inc., Nominal Defendant/Respondent/Cross–Appellant. |
| Court | Idaho Supreme Court |
Schwam Law Firm, Moscow, for appellant. Andrew M. Schwam argued.
Esser & Sandberg, PLLC, Pullman, WA, Timothy H. Esser, for appellant.
Hawley, Troxell, Ennis & Hawley, Boise, for respondent William V. McCann, Jr.
Michael E. McNichols, Lewiston, for respondent Gary E. Meisner. Michael E. McNichols argued.
Charles F. McDevitt, Boise, for respondent McCann Ranch and Livestock Company.
SUBSTITUTE OPINION
THE COURT'S PREVIOUS OPINION DATED JANUARY 10, 2012 IS HEREBY WITHDRAWN.
This case involves an ongoing dispute between Ron McCann (Ron) and his brother William McCann, Jr. (Bill) concerning the operation of McCann Ranch & Livestock Company, Inc. (Corporation), a closely-held corporation created by their father, William McCann, Sr. (William, Sr.). In 1997, William, Sr.'s shares passed to a trust set up to benefit his wife Gertrude McCann (Gertrude), with Gary Meisner (Meisner) as trustee. In 2008, Ron filed suit against Bill, the Corporation, and Meisner (collectively, Respondents) alleging a breach of fiduciary duties and seeking equitable relief or, if necessary, the dissolution of the corporation under I.C. § 30–1–1430. The district court granted summary judgment for the Respondents.
Ron now appeals, arguing that the district court erred in characterizing his claims as derivative and in finding that he failed to satisfy the elements of I.C. § 30–1–1430(2)(b). Ron also argues that the court incorrectly limited the scope of discovery. Respondents cross-appeal, arguing that the district court erred in failing to award them attorney's fees.
In the 1970s, Ron and Bill were each gifted 36.7% of the shares of the Corporation. The remaining shares were held by William, Sr. until they were transferred to a trust set up to benefit his wife, Gertrude. The trustee, Meisner, was given the power and discretion to vote and sell Gertrude's shares under certain circumstances. Following Gertrude's death, her shares pass to Bill. Upon the death of William, Sr. in 1997, Bill became the President and CEO of the corporation.
The business relationship between Ron and the Respondents soured over the next few years.1 In June of 2000, Ron filed a complaint alleging derivative claims related to the activities of Bill and other directors of the corporation. The complaint alleged a breach of fiduciary duties, negligence by the directors, conversion of corporate property, self-dealing and conflict of interest transactions.2 In response, the Respondents filed motions to dismiss for failure to comply with the written demand requirements for derivative actions in I.C. § 30–1–742. In August of 2000, Ron filed a motion to amend his complaint to more clearly include an individual, as opposed to derivative, action. On January 5, 2001, the district court denied the motion to amend and dismissed Ron's original claims with prejudice for failure to comply with I.C. § 30–1–742. Ron appealed to this Court, arguing that the district court: erred in dismissing the individual action; erred in its ruling on notice under I.C. § 30–1–742 ; and erred in the award of attorney fees and costs to Respondents. In its December 31, 2002 opinion (McCann I ), this Court affirmed the decision of the district court. McCann v. McCann, 138 Idaho 228, 61 P.3d 585 (2002). Among its conclusions, this Court upheld the district court's determination that the causes of action in Ron's original complaint were derivative rather than individual in nature.
The corporate discord did not stop after McCann I was dismissed. On June 10, 2008, Ron filed the initial complaint in the present action. Ron alleged that the directors of the Corporation breached their fiduciary duty owed to him as a shareholder by engaging in a "squeeze-out" and that such injury is grounds for a direct action.3 Ron's claims focused on his treatment by the Corporation, as well as financial transactions between the Corporation and Gertrude.4 Ron prayed for equitable relief or, if necessary, dissolution of the corporation under I.C. § 30–1–1430(2)(b). Respondents filed a motion to dismiss on July 16, 2008, arguing that res judicata bars the claims and that the complaint must be dismissed for failure to comply with the written demand requirements in I.C. § 30–1–742. On September 17, 2008, Ron replied that since his current claims are individual in nature, and his previous claims were derivative, res judicata does not apply. Ron filed an amended complaint on October 15, 2008, to which the Respondents answered on May 11, 2009, after the resolution of their motion to dismiss.
The district court issued a memorandum opinion and order on Respondents' motion to dismiss and Ron's motion to compel discovery on March 4, 2009. The district court granted partial summary judgment on the breach of fiduciary duties claim, holding that the claim is derivative and fails to meet the written demand requirements of I.C. § 30–1–742. The court denied summary judgment on the dissolution claim because Ron made the factual allegations necessary to assert the claim. As for discovery, "[i]n addressing new claims on the merits, the court anticipates that it will be considering events that took place after January 5, 2001." The memorandum also excused the Respondents from responding to interrogatories concerning events that predated the dismissal of McCann I.
After the district court's memorandum and order, Ron filed a motion for reconsideration of the dismissed breach of fiduciary duty claim. Respondents filed a motion in opposition to reconsideration, and a cross motion for reconsideration of the denial to dismiss the dissolution claim. On May 15, 2009, the district court entered an order denying both motions for reconsideration. Also in the order was a denial of Respondents' April 30, 2009 motion to bifurcate the trial.
The next round of motions dealt with lingering discovery issues. Although the district court limited discovery to events that occurred after January 5, 2001, Ron sought to compel pre–2001 documents that provided context for financial transactions occurring post–2001. Respondents filed a motion in opposition and for a protective order limiting all discovery to events after January 5, 2001. On August 31, 2009, the district court filed a second order concerning discovery that denied Ron's motion to compel on the grounds that Ron's inquiry did not appear reasonably calculated to lead to the discovery of admissible evidence.
After discovery, Ron moved to amend his amended complaint to include a third cause of action. The third cause of action was to be a derivative claim on behalf of the Corporation, using many of the same facts as the previously dismissed breach of fiduciary duty claim. On November 12, 2009, the district court ruled that Ron again failed to comply with the requirements of I.C. § 30–1–742 and denied the motion to amend.
On January 15, 2010, Respondents moved for summary judgment on the sole remaining claim, the corporate dissolution claim, arguing that Ron failed to show "irreparable harm to the corporation." On March 3, 2010, the district court issued its Memorandum and Order Concerning Various Motions. The court granted summary judgment, holding that Ron failed to show "irreparable harm to the corporation" and thus failed to prove the statutory requirements of I.C. § 30–1–1430(2)(b). The district court entered a final judgment on March 5, 2010.
Pursuant to the final judgment, Respondents filed a joint memorandum of costs and attorney fees, which Ron disputed. On May 18, 2010, the district court filed an order concerning costs that disallowed the discretionary costs and declined to award the attorney fees sought by the Respondents. A supplemental judgment was filed concurrently with the order.
Ron filed a notice of appeal on March 18, 2010. Respondents filed notices of cross-appeal individually, by Meisner on June 30, 2010, the Corporation on July 1, 2010, and Bill on July 2, 2010.
In its March 4, 2009 Memorandum and Order, the district court held that Ron's breach of fiduciary duty claim was not an individual action, but rather a derivative action brought by a shareholder on behalf of the corporation. Because Ron brought the action before giving proper written notice to the Corporation, the district dismissed the claim for violating I.C. § 30–1–742. Idaho Code § 30–1–742 provides:
No shareholder may commence a derivative proceeding until: (1) A written demand has been made upon the corporation to take suitable action; and (2) Ninety (90) days expired from the date the demand was made unless the shareholder has earlier been notified that the demand has been rejected by the corporation or unless irreparable injury to the corporation would result by waiting for the expiration of the ninety (90) day period.
On appeal, Ron argues that his claims are individual, thus not governed by the demand statute, and that the district court erred in dismissing them as derivative.
Where a motion to dismiss for failure to state a claim upon which relief can be granted is supported by information outside of the pleadings, the motion is treated as a motion for summary judgment. The standard of review on appeal from an order granting summary judgment is the same standard...
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